In this question and answer session, Jim Rogers talks about the impact of the economic and financial turmoil on Asean.
Q: What is the outlook of the financial markets next year?
A: The troubles in the financial markets have started. There will be a lot of turmoil in the financial markets next year, eventually leading to some sort of crisis, perhaps even a full blown crisis.
Some emerging-market currencies are already having problems this year, and this is spreading to bigger things since this is the first time in history that all the major central banks are printing huge amounts of money.
My main concern is that the US Federal Reserve doesn’t know what it’s doing. It does not know what it is going to do next as interest rates are going to go higher so it has to start withdrawing huge artificial oceans of liquidity. When that takes place, 2016 and 2017 are not going to be fun years because these guys have made mistakes and they have to correct it.
To what extent will Asean economies be affected by the volatile financial markets?
The region will fortunately be in better shape than most as they’re oil-producing countries as well as agriculture-based economies. It is the US and Europe that will be impacted the most as they are in worse shape than most.
Asean has savings, no big debts and convertible currencies. However, when Asean’s main markets have problems, there will be problems too for Asean companies. We’re going to know something is wrong although we may not suffer as much as Italy did but the effects will be there as Europe, the United States and Japan are major customers of Asean exporters.
What can Asean expect in the wake of the economic turmoil?
Unemployment, declining corporate profits and some bankruptcies. More bankruptcies will be seen in the developed economies than in Asean as companies in the region do not have debt weighing them down nor do countries in the region suffer a declining population. So, you’re in the right place, don’t leave. Oil-producing and agriculture-based economies such as Indonesia and Malaysia are less likely to be affected although commodity prices have fallen. But companies doing a lot of business with the United States and Europe will be impacted.
The region will have to worry about how decisions made in Washington DC, Tokyo or Europe will impact it, that’s the worry. These are the people causing the problems and we have to pay for it. I would rather be here than in a Western country as these countries will have more problems.
What measures should Asean take to mitigate the effects of the volatility?
Asean governments should pay down their debts, don’t close off their economies and have more open societies. Stay open because history shows that economies that try to take protectionist measures in the end wind up being worst off.
Countries in the region are fairly open, so the worry is that the governments will take protectionist measures when things start to get wrong. They should stay open and pay debts. Asean governments should balance their budgets and when the Asean Economic Community comes about, there’s a sizable market of 600 million people. Companies can now expand into a bigger regional market and build capacity for a global market too. If they do that, we will all be better off.
Asean also has an educated labour force and costs are far lower.
What sectors should investors look to in light of the US rate hike and China’s slower growth?
You should invest in only what you know about. However, I have put some of my money in places that are depressed like Japan, Russia and agricultural commodities. I do own some real assets like silver and gold. However, I have not bought silver and gold for a while, but if prices fall further, I will buy more gold, and again the best is to stay with what you know.
Asean has lots of agricultural produce, so this might be a relatively less dangerous place to be. While agricultural prices are depressed and we may see more problems, we’re not going to see disastrous problems. Stocks in the New York Stock Exchange can fall by 60% to 70% when things get bad but I don’t see sugar or rice prices falling by that amount. Agricultural prices have fallen and may start to turn around.
Avoid technology stocks, especially the mainly US-listed social media and biotechnology stocks as their valuations are extremely high. Salaries of employees are also very high. Even if there’s no tech bubble, the share prices certainly look expensive.
I will not be putting my money there.
